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Payment Design and Price Elasticity

Author

Listed:
  • Imelda, Imelda
  • Abatayo, Anna Lou
  • Resusodarmo, Budy

Abstract

Prepaid electricity meters change when consumers pay, but not the price they face. Using household billing data from Indonesia and overlapping reforms to metering and electricity tariffs, we show that payment design affects both the level and price responsiveness of electricity demand. Conversion to prepaid metering reduces consumption by 12% before prices change; when prices increase, the price elasticity doubles. Greater responsiveness persists for at least six years. An incentivized survey shows that 80% of prepaid users would forgo compensation rather than return to postpaid billing. Payment design can therefore strengthen the effectiveness of electricity pricing policy.

Suggested Citation

  • Imelda, Imelda & Abatayo, Anna Lou & Resusodarmo, Budy, 2024. "Payment Design and Price Elasticity," CEPR Discussion Papers 19778, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:19778
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    File URL: https://cepr.org/publications/DP19778
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    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General

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